The continued rise of bond yields are seriously affecting hedge funds. In fact, according to the Commodity Futures Trading Commission (CFTC), hedge funds have maintained a moderately bullish outlook for gold and have pulled out of small short positions. However, some analysts say that gold investors are to face serious obstacles, as bond yields remain at their highest level in a year.
The latest Commitment of Traders Report shows that CFMs have reduced their speculative long positions in gold futures. It decreased by 873 contracts to 125 on Comex. At the same time, short positions fell by 2,040 contracts to 56,001. All in all, net long positions are 69,123 contracts.
But even if speculative investors try to maintain their long positions, analysts warn that it will become increasingly difficult to do so, especially since the yield on 10-year bonds soared to a new yearly high last week (by over 1.6%).
"February was indeed the most disastrous month for gold. It fell by more than 6%, which is a noticeable loss since November last year. The unprecedented sharp rise in yields is the main pressure on gold, as it made the precious metal less attractive, prompting investors to sell their assets," Commerzbank said.
Meanwhile, TD Securities note that rising bond yields are changing the situation for many gold investors. They claimed that gold has to decline before the market could bounce back significantly.
"There may be more liquidated longs and new short positions in the market as technical and fundamental characteristics push gold towards $ 1,600," they said.
Ole Hansen of Saxo Bank also mentioned that he sees the risk of a protracted correction if gold prices fail to rise above $ 1,760 an ounce.
But he added that there is still hope for gold investors, as rising bond yields also threaten the global economic recovery. This could force the Fed to do some action and enter the market.
The weak performance of gold seems to be affecting silver prices as well.
According to the latest report, long positions in silver decreased by 1,000 contracts to 62,102. Meanwhile, short positions increased by 262 contracts to 24,600. All in all, net long positions stand at 37,502 contracts.
Despite this, analysts remain optimistic about silver. They expect the gray metal to outperform gold soon amid stronger demand brought by improving global economic outlook.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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